Thursday, April 16, 2015

Yudit Kiss - New trends in weapons production in East Central Europe reflect major changes in the global arms industry

Several of the world’s largest arms manufacturers are located in Western Europe, but how has the arms industry developed in Central and Eastern Europe since the end of the Cold War? Yudit Kiss writes on the development of companies involved in weapons production in the region. She highlights three key global trends which characterise the industry: the impact of globalisation, the emergence of multiple new players, and the existence of blurred boundaries between civilian and military companies.

Under the previous system, the military-related segment of the economy had clear-cut borders: weapons were manufactured by a relatively closed group of state-owned companies inside national boundaries. Today’s liberalisation, increasing division of labour, globalisation and the dominance of integrated systems that replace “homogenous” end-products, blur the boundaries between national/international and civilian/military industry...

Stockholm-based SIPRI has recently published the latest database on global arms production. The material shows a fundamentally unchanged situation; for the last decades, by and large the same group of key companies headquartered in North America and Western Europe has dominated the world’s weapon production. The only remarkable exceptions, large-scale state-owned military-industrial complexes in China, some of which might well rank in the top 20, do not figure on the list, due to the lack of accessible output figures.

The global arms industry is a frozen, hierarchical system, characterised by tough competition, monopolistic positions and increasing costs. Underneath this seemingly static sphere, however, there is a rapidly changing, complex, busy underworld: the extremely competitive and mobile, multi-layered system of subcontractors. One of the fundamental changes of the last two decades has been the gradual transformation of the key weapon companies from primary producers into system integrators and the end products they offer contain key elements of their multiple sub-contractors.

Prime contractors have varied and complex relationships with their suppliers ranging from occasional sales or cooperation to joint ventures or straight ownership. Subcontractors might cater to various big players who compete with each other on the global arms market, but are also often tied together through joint projects and indirect links of shared inputs or cross-ownership.

The arms producers of East Central Europe (ECE) – Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia – represent a tiny segment of the world’s weapons production. Despite its modest size and subordinate status, the study of this segment provides important lessons about changing economic and social systems and industrial adjustment, highlighting major new trends in the world’s arms industry, some of which are described below.

During the Cold War period, the arms industry was an isolated universe in the Eastern bloc. Weapons production was a closed segment of national economies and arms were traded inside the Warsaw Pact system, with hardly any links to Western arms-manufacturers and only loose commercial ties with some left-leaning Third World countries. Today the region’s arms industry is integrated into national economies and has vital links with the world’s globalising weapon-producing networks and arms markets.

After having lost the large-scale and strictly regulated captive market that the Warsaw Pact represented, the region’s arm producers have made considerable efforts to reach new outlets all over the world. Since NATO-related markets are difficult to enter, most ECE produced military items are sold in Asia, Africa, the Middle East and some Latin American countries... read more:

More by Yudit Kiss on the economics of the arms industry

Yudit Kiss grew up a communist in Budapest, soaking up her father's ideology unquestioningly. As a child she is puzzled when others refer to her as Jewish; she only knows that her family doesn't believe in God.